Monday, 30 May 2016

Testing EU experimentalist governance in the Telecoms sector

The building of a Digital Single Market for
telecommunications is one of the main priorities of the current European
Commission.[i]
Yet, the achievement of an actual single market for telecoms is still far from
becoming a reality. The designed (multi-level) regulatory model for telecommunications
places sector-specific National Regulatory Authorities at the core in the
system for the implementation of the EU regulatory framework for telecoms.
Moreover, the enforcement of the framework corresponds to the Member States
under the national procedural autonomy. However, in order to preserve the legal
integrity of the EU rules, the consistent application of the EU telecoms
framework and the achievement of its policy objectives builds on a
sector-specific supervisory mechanisms that grants the European Commission
greater powers to monitor the different regulatory approaches of national
regulators: Articles
7 and 7a of the Framework Directive on
telecoms regulation.[ii] These articles put in
place a consultation and monitoring system of a post-legislative nature that
aims at consolidating the internal market for telecoms based on a combination of hard and soft law
techniques, but is this
system up to the task?

In
a nutshell, the case deals with a clash between the Dutch telecoms regulator,
which issued a regulatory decision implementing a Commission Recommendation on
termination rates,[iii] and the Dutch Trade and
Industry Appeals Tribunal, which overruled the National Regulatory Authority’s
(NRA) decision in the context of a procedure of judicial review following the
appeal of the regulatory decision by some market telecoms operators. In
particular, the national Court required the NRA to deviate from the Commission
Recommendation on the grounds that there were no reasons for justifying a
modification in the methodology used for calculating caps on termination rates.

However,
this is the second time that the regulatory decision following the
Recommendation is contested in front of the national court in The Netherlands.
Already in 2010, the Dutch regulator (at that time OPTA, now ACM[iv]) issued a decision in line
with the guidance provided in the Commission Recommendation on termination
rates. That triggered an initial response by the telecoms operators, who
appealed the regulatory decision. In very broad terms, and leaving aside further
competition concerns and issues of market analysis that were also object of the
plea, the Court, upholding the appeal, argued that despite the Commission’s
Recommendation on termination rates, conditions on the national market remained
unchanged and, therefore, there was no reason to adjust the methodology for
cost calculation in accordance with the Recommendation. Essentially, the court
concluded that the inefficiencies in retail pricing cannot be resolved by
imposing a “more invasive measure” at wholesale level, given that the retail
mobile market was already considered competitive.[v]
As a result, the Court established new cap prices for termination rates and
compelled the regulator to take a new decision setting the relevant rates on
the basis of a different cost-methodology than that suggested by the European
Commission. As part of the consultation procedure enshrined in Article 7a
Framework Directive, the national regulator notified the European Commission the
new decision compliant with the court’s judgment. In view of the Commission,
that decision could create a barrier to the Internal Market. This led to the
opening of a Phase II investigation under Article 7a procedure. Such a
situation placed the NRA in the middle of a “tug-of-war” between the European
Commission and the national judiciary. At that time, the national regulator
could do anything but to give effect to the judgment of the highest
administrative court in The Netherlands. However, two years later, in the
context of a new market analysis, the regulator –perhaps pressured by the
Commission’s investigation under the 7a procedure– issued a new decision
following the European Recommendation. As expected, the new decision was again
appealed in front of the national court. However, on this occasion, the
national court decided to refer the case to the European court for preliminary
ruling.

Issues at stake

In
brief, the national judge asked the European court to clarify the discretion of
the national judge[vi] to
depart from a EU Recommendation on the basis national legal and factual(!)
circumstances. The national court also seeks clarification as to the competence
of the national court to assess the proportionality of the NRA’s performance
within the context of the judicial review of regulatory decisions (Article 4 of
the Framework Directive). Accordingly, the case addresses three
fundamental legal (and institutional) tensions: 1) the legal and
factual effect of soft-law; 2) the institutional and substantial limits of
the judicial review of the activity of the national regulator; and 3)
the proportionality of the NRA’s regulatory activity when giving effect to
a EU Recommendation in a situation where the factual circumstances of a
national market remain unchanged (reflecting a clash between the national
regulator and the national judiciary).

So
far, we do not have a final Judgment from Luxembourg. However, the analysis of
the recently issued Opinion (28th April) already provides warnings
about the institutional problems that this case entails, in particular, for
those other NRAs in Europe that are facing a similar situation and that,
therefore, are awaiting a decision.

AG Opinion

In
the Opinion, AG Mengozzi holds that, despite its non-binding nature (para. 54),
the national court has to “take into consideration” the Recommendation on
termination rates (para. 57). Moreover, he also posits that the national judge
must act with “extreme caution” when deciding to depart from the methodology
suggested by the Commission (paras.53 and 64). Advocate General also considers
that it is not a problem of incompatibility of the national law with the EU
legal provisions. In particular, he states that he finds (para. 72)

“very difficult to conceive that the national law, as
it has stated that court, namely, as proceeds from Union law, requires, by its
wording and its capacity, departing from the calculation model recommended by
the Commission”

However,
and given that that does not mean
that there is only one appropriate model to give effect to the provisions
contained in the Access Directive[vii],
Mengozzi acknowledges, the
specific characteristics of the Dutch market could lead the national court to
depart from the recommended model (para. 75).

The
second part of the Opinion focuses on the assessment of proportionality of the
regulatory decision in accordance to the regulatory objectives to be pursued by
NRAs under the Framework Directive as part of the judicial review. In Mengozzi’s
view, the scope of judicial control of the regulatory activity reaches the
proportionality assessment (paras. 80 and 84). As to this proportionality
assessment, he holds that, in his view, following the Recommendation would
entail a presumption of proportionality with the EU regulatory objectives enshrined
in Article 8 of the Framework Directive; namely, promotion of competition,
contribution to the development of the Internal Market, and promotion of the
interests of the citizens of the European Union. This is important because the
regulator’s justification to impose an obligation in a regulated market
(wholesale) was based on the effects to be produced on a non-regulated market
(retail). Accordingly, when it comes to the burden of proof, and given that it
would require the demonstration
of an impossible (or excessively difficult to provide) evidence, he concluded that the national
court cannot require the NRA to sufficiently prove the effective achievement of the regulatory objectives (paras. 92 and
96).

Comments

Harmonizing
the Internal market under a multi-level governance structure is not an easy
task, and this case overly illustrates the difficulties that such endeavor
entails. The underlying issues that the case involves can be summarized as
follows:

1.First, should the European court follow AG’s Opinion
it would mean that the national judge, when deciding on the appeal, can
overturn the analysis performed by the regulatory authority, as it already did
with the first national ruling; i.e. the national judiciary would be acting as
a de facto regulator. This results in an institutional
conflict that slows down the integration of the telecoms market –the case has
been ongoing since 2010. In my view, this judicial spillover raises the
question as to whether the intervention of the national judiciary into the
regulatory activity needs to be balanced against the principles of equivalence
and effectiveness in the context of the implementation of a non-binding
instrument.

2.Secondly, the case casts doubts on the effectiveness
of the sector-specific supervisory mechanism put in place under Articles 7 and
7a procedures of the Framework Directive, and the limits and actual effect of
soft law as an integration tool.

3.Thirdly, the multi-level governance design upon which
the sector is build raises the question as to whether the national court should
be entitled to determine the effective
influence of national regulatory measures beyond the domestic marketplace. If
the ECJ agrees with the Opinion, it would be for the national judge to decide
on the effect of a national measure on the Internal Market – something that
should belong to the ECJ. This calls for further answers concerning the
viability of the telecoms market, as a fast-paced market, to coexist with
divergences in Europe or, rather, whether the regime should be upgraded (e.g.
more formal powers to the European Commission or the creation of a European
Telecoms Agency, something that has failed so far).

4.Finally, the related problem of building a single
market for telecoms under a multilevel governance system. Given the relevance
of the case for other NRAs around Europe that are facing similar situations,
most of the regulatory decisions from European NRAs involved investigations
initiated by the Commission under the abovementioned Article 7a procedure are on
hold until the case is decided.

Conclusions

The case addresses classic and timely
questions about the role and legal effect of EU soft law. In particular, when
it comes to the effectiveness of soft law mechanisms for market-integration
purposes; which is perhaps the most interesting aspect of the case.

Whatever
the final outcome will be, it will have remarkable consequences for the current
configuration of the telecoms institutional and procedural framework. One
possibility is that the European court does not allow the national judiciary to
depart from the Recommendation. In such case, it would mean that there is no
room for domestic adaptation and Article 7a procedure would then help to boost
non-binding decisions from the Commission. However, the other possibility is
that the court follows AG’s interpretation. In my view, allowing departure from
the Recommendation would render Article 7a procedure ineffective, provided that the national court
would define to what extent the effect on the Internal Market of a national
regulatory decision is sufficient so as to justify a mandatory compliance with
a non-binding European instrument.

Photo
credit: ispreview.co.uk

[i] Political Guidelines for the next European
Commission – A New Start for Europe: My Agenda for Jobs, Growth, Fairness and
Democratic Change (15 July 2014), Jean-Claude Juncker.

[ii] Directive 2002/21/EC of the European
Parliament and of the Council of 7 March 2002 on a common regulatory framework
for electronic communications networks and services (Framework Directive), as
amended by Directive 2009/140/EC and Regulation 544/2009.

[iii] Without much elaboration on the technical
details, termination rates are the rates which telecoms networks charge each
other to deliver calls between their respective networks; i.e. how much mobile
phone operators can charge to connect calls on each other’s networks. The
Commission Recommendation aims at harmonizing the costing methodology used in
the calculation of price caps for termination rates; Commission Recommendation (2009/396/EC) of 7
May 2009 on the Regulatory Treatment of Fixed and Mobile Termination Rates in
the EU. OJ L 20.5.2009, pp. 67-74.

[iv] OPTA (Onafhankelijke Post en
Telecommunicatie Autoriteit,
"Independent Post and Telecommunications Authority", in English)
was replaced by a single “super watchdog” body: the Netherlands Authority for
Consumers and Markets (‘ACM’) after the merger of the Netherlands Competition
Authority (NMa), the Netherlands Consumer Authority, and the Independent Post
and Telecommunications Authority of the Netherlands (OPTA). ACM became
operational as of 1st April 2013.

[vi]Interestingly, the national court poses
question(s) of the legitimacy of the court
to deviate from the Recommendation, but it does not refer to the NRA’s
discretion to not follow the recommended costing methodology, which is the
situation in some other Member States.

[vii]Directive 2002/19/EC of the European Parliament and of the Council of 7
March 2002 on access to, and interconnection of, electronic communications
networks and associated facilities (Access Directive).